Key Control and Test of Control
Key Control
There is segregation of duties for the HR
department that is responsible for setting up
all new joiners and the payroll department
that is responsible for setting up employee
payment.
To reduce the risk of fictitious employees
being set up and being paid.
There are pre-printed forms which are
completed by HR for all new employees.
The use of pre-printed forms ensures that all
relevant information, such as Tax ID number,
ID number, education background, is
obtained completely prior to setting up a new
employee.
A copy of the new joiners form is sent to the
payroll department for the employee to be set
up for payment. The form includes the staff
member’s employee number and payroll
cannot set up new joiners without
information about employee number.
As the payroll department cannot set up
payment for new joiners without an employee
number issued by the HR department, this
reduces the risk of fictitious employees being
set up by the payroll department.
This quarterly bonus is entered into the
system by a clerk and each entry is checked
by a senior clerk for input errors prior to
processing. The senior clerk signs the bonus
listing as evidence of undertaking this review.
This procedure could reduce the risk of input
error which results in over/underpayment of
the bonus to the employees.
Production employees are issued with clock
cards and are required to swipe their cards at
the beginning and end of their shift. This
process is supervised by security staff 24
Test of control
Review the job description of the HR and
payroll department to confirm that there are
different responsibilities for HR and payroll
with regards to setting up new joiners.
Discuss/enquire with members of payroll
department the process for setting up new
joiners to confirm that the process must be
initiated by HR
Select a sample of new employees added to
the payroll during the year, and review the
forms used for setting up new joiners whether
it is pre-printed or not.
Test the system by setting up payment for a
new dummy joiner without employee number
and confirm that payment set up cannot be
conducted.
Obtain a sample of bonus listing, inspect if
there is a signature as evidence of review,
and reperform the review to confirm that
review by the senior clerk is conducted
properly.
If attending the input process, observe when
the senior clerk reviews the input errors prior
to signing the bonus listing.
Observe when production employees use
clock cards at the beginning and end of their
shift to confirm that each production
employee has a clock card.
hours a day.
This procedure reduces the risk of employees
not completing their eight-hour shift and risk
of employees could swipe in others’ cards
which result of overpayment of wages.
Control Deficiencies and Control Recommendation
Control Deficiency
The production supervisors determine the
bonus amounts to be paid and notify the
payroll department.
Production supervisors should not determine
the bonus amount to be paid, because he/she
could pay extra bonuses to friends, family
members, or favourable employees, which
results in additional payroll costs for the
company.
The wages calculations are generated by the
payroll system and there is no checking for
wages calculations.
Therefore, if system errors occur during the
payroll processing, this would not be
identified. This could result in wages being
over or under calculated.
Overcalculated could result in additional loss
for the company. Undercalculated could result
in loss of employee motivation.
Observe if the swipe process is supervised by
the security staff and enquiry the security staff
about how to handle the case of employees
swipe for others or employees not completing
their shift.
Control Recommendation
There should be a clear written policy in
formulating and calculating bonus payment.
The bonus should be determined by a
responsible official, such as the production
director.
A member of the payroll team should
recalculate the gross to net pay workings for
a sample of employees and compare the
results to the output from the payroll system.
The member of the payroll team should sign
the comparison as evidence of the
recalculation.